Americans aren’t bothered about the grocery inflation

It’s official: Americans are paying up for their favourite goods. December saw the biggest 12-month gain in inflation since 1982. Last week, Procter & Gamble Co. raised its sales outlook for the year to the end of June on the back of higher prices.
In the three months to December 31, organic sales (which exclude the impact of currency movements, acquisitions and disposals) rise 6%. This was split equally between volume gains and price increases. The company, which owns brands including Pampers diapers and Gillette razors, also lifted its forecast of full-year organic sales growth from 2-4% to 4-5%. The shares rise about 4% in early trading.
Consumers clearly aren’t balking at having to pay more for their groceries. In fact, P&G said that so far, they were reacting to price increases more favourably than in the past. Instead of pulling in the purse strings, consumers are trading up. For example, in its Oral-B business, more Americans are
opting for more expensive teeth whitening options. In diapers, more parents are choosing the
premium ranges.
Of course, P&G is in the lucky position of having a suite of household name-brands, many of which are used daily for health, hygiene and cleaning. But the fact that sales are up alongside inflation is encouraging for other consumer-goods groups — particularly rivals Unilever Plc, Nestle SA and Colgate-Palmolive Co. — as well as
retailers such as Walmart Inc. and Target Corp.
People noted before that a little inflation is good for manufacturers and retailers alike. The value of sales expands, and consumers
get used to paying more at the check-out counter.
However, it’s a problem when price rises grow rampant. And we probably haven’t seen the last of grocery price hikes, even with manufacturers putting in place their own cost-cutting programs. The majority of the increases P&G announced hasn’t taken effect yet. That partly explains why its gross margin fell by 4 percentage points in the second quarter.
What’s more, up until now, many consumers’ incomes have been bolstered by pandemic savings and stimulus payments. That cushion is deflating fast. Add in the likely prospect of higher borrowing costs, and household spending power may be squeezed.
Amid the collision between price hikes and stretched budgets, consumers may be tempted to trade down from P&G’s products to cheaper private labels. Alternatively, they could turn to the German discounters, Aldi and Lidl, which are expanding across the US and sell far fewer big brands than mainstream
supermarkets.
That hasn’t happened yet. But consumer goods groups can’t take shoppers’ recent penchant for
paying up for granted.

—Bloomberg